Investment Column: Picture remains unclear for ICI

Imperial Chemical Industries has undergone such a year of transition that its 1997 results are of limited value either as a comparison with previous performance or as a yardstick for how well it may do in the future. Profits before tax and exceptionals came in at pounds 385 against pounds 603m. This was towards the bottom end of the range but not wildy unexpected given the clobbering ICI took from exchange rates and its soaring interest bill. The strong pound wiped pounds 190m off earnings while the acquisition of Unilever's speciality chemicals business helped debt levels to peak at pounds 6.3bn, increasing the interest charge for the year from pounds 89m to pounds 251m.

The revolving door at 9, Millbank has seen pounds 2.5bn worth of businesses sold off, a further pounds 1.2bn of sales contracted and perhaps another pounds 800m of disposals to come this year as ICI sheds its industrial chemicals image and concentrates on a portfolio of paints, flavourings, fragrances and fine chemicals.

The result is a riot of continuing operations, discontinued operations, continuing operations to be discontinued, exceptionals and goodwill write- offs. ICI's decision to squirrel away pounds 440m of the pounds 777m profit it made on disposals last year and use the money as provisions against losses expected on the upcoming sale of Tioxide and explosives means that the picture this year should look a lot cleaner.

The combination of the Asian downturn, slowing world growth and unfavourable exchange rates will make for another tough year in 1998. But the good news is that ICI's exposure to the Far East has more than halved to 12 per cent of turnover following the sale of ICI Australia. Meanwhile, the exit from industrial chemicals will reduce currency exposure while the nature of the product range means that ICI manufactures much more of its output in local markets.

The 50 per cent jump in fourth quarter profits showed the contribution from the Unilever acquisition flowing through, particularly National Starch where operating margins are approaching 15 per cent. However, the task will be to achieve double-digit margins in the other businesses. Debt levels this year will fall to pounds 2.6bn and perhaps lower, sharply reducing the interest bill while the clearout of underperforming bulk chemical rump, should help earnings. The shares, up 39p to 978p, put ICI on a forward multiple of 18.5 times earnings supposing profits around the pounds 600m mark this year. Still scope for buying.